Decentralized exchange requires all parts to be decentralized.
If you exchange BTC to wire transfers, you already lose because banks are centralized and ask questions. LocalBitcoins is somewhat decentralized, it allows trading person-to-person, but it does not work in all jurisdictions and not when you have a big turnover. And it's inherently not safe: you rely on reputation of the trader or opinion of the arbiter.
Sorta kinda agree.. a *perfect* decentralised exchange with bank wires could never occur, sure. The Localbtc model has a lot of advantages, but the big disadvantage is the centralised server and hot wallets involved. If you can do the same, including reputation systems and multisig, but with a p2p network, it's clearly a step forward. Arbitration/escrow might still be needed (I believe it is), but it can be turned into a market instead of your only option being localbtc themselves. Arbitration requires evidence, but TLSNotary can address that (actual cryptographic proof of a transfer). Reputation systems are a problem on localbtc and they'll still be a problem on a future decentralised version like bitsquare; problematic in that it'll never be perfect.
Cash is decentralized. You can use joint escrow with a trader, swap cash for coins and go home. Both put insurance deposit in 2-of-2 multisig BTC before meeting (must be 200% of the value exchanged from each side). When coming home safe and with valid cash and confirmed coins, both unlock the deposit. This is somewhat secure and better protected from all-observing eye, but: 1) it requires owning considerable amount of BTC from both sides prior to action; 2) it's a physical meetup, so some AML/KYC folks could kick in (especially if they monitor the seller for a few deals already) and arrest all your belongings and maybe charge you with conspiring with some drug money laundering or whatever.
The 2 of 2 model is very problematic. It didn't work for NashX, and I don't see it working for more recent implementations either. Side-channel blackmail is always a major flaw as far as I can see. The "fiat micropayments channel" idea from Coinffeine would make sense to address that; the only problem is that "fiat micropayments channel" doesn't really make sense except in the context of a centralised system, in which case why are we going to all this trouble?
People who want to change their surveillancecoin (usd in banks) or drugcoin (physical paper cash) for Bitcoin must realize these inherent limitations. The best strategy is to not do anything illegal, buy a bunch of coins once on a safe platform or from trusted people you know, and then simply secure and hold your stash until hard times are over and you can simply buy things with it without exchanging back to fiat.
Definitely agree with this advice, at least today.